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Business deals

China's state-owned chemicals inch toward megamerger

Sinochem and ChemChina first combine agriculture units

A Sinochem factory: There has been speculation for years that China's two leading chemical makers could merge. (Photo courtesy of Sinochem)

BEIJING -- Sinochem Group and ChemChina are taking steps toward forming a single mega-sized, state-owned company with over $150 billion in annual sales, following up on their decision this month to integrate agrochemical businesses.

Publicly listed subsidiaries of both groups said Thursday that they received a letter saying Sinochem and ChemChina are "planning for a strategic restructuring." No further details were provided.

"The two groups could strengthen their cooperation in areas like rubber and tires, and could advance negotiations for a full merger," an industry insider said.

Sinochem was originally a petrochemical importer, and is a key player in chemical fertilizers and pesticides. It also purchased oil assets in Colombia from French oil major Total. It logged 586.3 billion yuan (84.5 billion) in revenue in 2019.

ChemChina, officially China National Chemical Corp., was created out of a merger of state-owned chemical factories. It acquired Italian tire maker Pirelli in 2015 and Swiss agrochemical maker Syngenta in 2017, the latter for $43 billion. It made 500 billion yuan in sales last year, according to Chinese media reports.

There has been talk of a potential merger since 2016, when Ning Gaoning, who helped grow China Oil & Foodstuffs, was appointed chairman of the then-struggling Sinochem. The Chinese government was believed to be working toward merging Sinochem and ChemChina into a more competitive entity.

In 2018, Ning was also appointed the chairman of ChemChina, and has been looking to boost cooperation between the two groups. As part of this, the groups agreed on Jan. 5 that ChemChina will acquire Sinochem's agricultural business, as they seek to boost profits through greater scale.

Still, obstacles remain for further cooperation. Some insiders believe the treatment of overseas subsidiaries stand in the way for a full merger.

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